Thursday, September 29, 2011

Business Bankruptcy and its Effect on its Owners

In this edition of ANH Legal Group's Bankruptcy Blog, we will discuss Business Bankruptcy filings and its effects on its owners and officers (personally). In the past year, we have seen many family owned small to midsized companies succumbed to the current recession by filing for Chapter 7 Bankruptcy. Some of these companies try to file for Chapter 11 Bankruptcy for Reorganization at first but in the end they all head to liquidation under Chapter 7 of the Code. In virtually every filing, our clients' biggest concern relates to personal liability for corporate debts and obligations.

Overall, very few small to mid-sized corporations have sufficient corporate credit to avoid the required personal guarantees for office leases, loans, vendor contracts, supplier contracts, and other business related obligations. Furthermore, in most family owned small to midsized companies, the owners of the company tend to commingle personal funds/debts with company funds. For instance, the owners of many family owned small to midsized companies have credit cards in the name of the business but these cards are all personally guaranteed. In such instances, if the corporation declares for Bankruptcy its credit card debt would shift to the personal guarantee. If the owner declares for Bankruptcy, the credit card debt would shift to the corporation. In sum, (unfortunately) usually there is no way to untangle the owner from the Company legally in Bankruptcy when company funds/obligations are commingled with personal ones. As such, the owners of most family owned small to midsized companies usually have to declare Bankruptcy along with their corporation to truly get a fresh start.

We at ANH Legal Group have a great deal of practical legal experience in business bankruptcies. If you need help restructuring your business, please do not hesitate to contact us.